Wal-Mart: world's largest company

ROGERS, ARK.
— The world's new No. 1 company boasts no factories or smokestacks. It has no signature product. Instead, Wal-Mart Stores has reached the top by selling other people's goods more cheaply than anyone else.

When the Arkansas-based corporation releases its 2001 fiscal year revenue figures today, it's expected to breeze by oil giant Exxon Mobil to become the world's largest corporation, with sales of $218 billion.

Wal-Mart's ascent signals many things: the power of ideas, the importance of corporate values, and the triumph of the post-industrial economy. For the first time since the Industrial Revolution took hold in the United States, a nonindustrial, service business has risen to the top of the corporate rankings.

But the epic transformation of a single five-and-dime into a world-beating corporation has its downside. It has sucked the life out of small-town business districts. Its low-price success is spawns low-pay jobs. Its spread has helped pave over America's geographical diversity with cookie-cutter stores that detractors find numbingly similar.

If the "Wal-Martization" of America - and increasingly, the world - stands for anything, it's this: Good ideas backed with hard work can reach unimaginable heights. But success often has unintended consequences.

These two faces of success follow Wal-Mart wherever it locates. Here in Rogers, Ark., they stare each other down and provide a preview into where the Wal-Mart phenomenon may lead America.

A sleepy, rural town when Sam Walton opened his first Wal-Mart here 40 years ago, Rogers now pulses like a boomtown. The region, including nearby Bentonville and Fayetteville, represents the sixth-fastest growing US metro area. Most locals seem to enjoy the heady times. But the more Wal-Mart grows, the louder its critics get. "It does have an effect on [what] I think [is] something more important than shopping," says Al Norman, head of Sprawl-Busters and one of the corporation's most vocal detractors. "Every little town starts to resemble every other town. And people who gather in these enormous warehouses frequently never see anyone familiar from visit to visit."

All this seems a world away from 1962 when Woolco, Target, Kmart and Wal-Mart were launched.

Walton's first store in Rogers was an inauspicious beginning. An investor in local five-and-dimes, Walton had none of the corporate backing or experience of the other three. He did have "a searing insight ... that small towns could support big stores," says Harvard business professor Richard Tedlow.

While Walton's competitors conquered the cities and suburbs, he aimed at rural America. It turned out to be brilliant strategy. By not competing directly with the large chains, he could experiment and build his empire without attracting much attention. As a result, he offered rural America a broader range of goods at cheaper prices than ever before. In the process, he decimated mom-and-pop merchants.

While other retailers also pioneered new techniques, Walton excelled in implementing them. He readily borrowed ideas from Kmart founder Harry Cunningham. He listened to his own associates - an employee in Lousiana inspired the idea of front-door greeters.

His improvements reached into virtually every avenue of retail. He early on realized the power of the bar-code scanner to automate inventory control. His company streamlined shipping. Wal-Mart quickly adopted wireless networking and now boasts the world's largest private computer network.

Today, Woolco is gone; Kmart last month filed for bankruptcy; and Target, while profitable, remains a much smaller chain than Wal-Mart.

Perhaps his greatest achievement was stamping his down-home values on the company's culture. He focused intensely on the consumer. He instituted a 10-foot rule where employees were supposed to greet customers whenever they got within 10 feet of them. Incredibly frugal, he passed on his parsimony to his employees. Even today, a decade after his passing, Wal-Mart's main offices in Bentonville look more like a really old mall than the headquarters of the world's largest company. Employees still take out their own trash.

When marketing Professor Jay Handelman at Alberta's University of Lethbridge began surveying Wal-Mart's impact on Canadians, he found customers didn't get what they wanted, they wanted what they got.

Before a Wal-Mart arrived in a community, for example, local consumers would tell Mr. Handelman that they wanted a new store to offer such things as special sales and a good location. But months after the arrival of Wal-Mart, which downplays sales in favor of everyday low prices, consumers had changed their preferences to everyday low prices. And location mattered hardly at all.

"Even though they're this huge multinational, they're able to portray themselves as the local community store," he says.

Some 100 million people a week buy into the "we're just like you" message. The company's annual sales rival the gross domestic product of Austria, the world's 22nd largest economy.

There are many ways to measure a company's size. Wal-Mart still trails General Electric and Microsoft in stock value. Nevertheless, the company displays unrivaled reach.

Besides being the world's largest retailer overall, it sells more groceries, toys, and jewelry than any other US chain.

But increasingly, the success and spread of Wal-Mart is generating a backlash of criticism. For example, while Wal-Mart didn't invent sprawl, it has taken it to its logical conclusion. It is moving from large discount stores to even larger super-centers where shoppers can buy briefs, bean sprouts, and big-screen TVs all under the same roof.

"Personally, I can't bear shopping in them," says Roberta Brandes Gratz, co-author of a 1998 book about the rebirth of downtown shopping areas. "There's a definite indication out there that people are bored with the sameness of the mall atmosphere."

Mr. Norman, whom CBS's"60 Minutes" dubbed "the guru of the anti-Wal-Mart movement," successfully kept Wal-Mart from locating in his hometown of Greenfield, Mass. Now, several dozen anti-sprawl groups are trying to do the same around the country.

Just as worrying to some is Wal-Mart's impact on workers' earnings. As the world's largest private employer - more than 1.2 million at last count - Wal-Mart is hardly a pacesetter in boosting people's take-home pay. Union officials claim the company typically pays its workers $2 an hour less than unionized supermarket employees. Nearly two-thirds of its workers don't participate in the company's health plan, they add, because of high insurance premiums and huge deductibles.

That's quite a change from the just-ended era when GM and Exxon stood at the top of the corporate heap. They paid solidly middle-class wages. Wal-Mart illustrates the danger of what happens when well-paid industrial jobs give way to low-paid service positions.

In 1954, for example, when Fortune Magazine first put out its Fortune 500 list and anointed General Motors as No. 1, the average autoworker brought home $91.30 a week. Retail workers averaged just over half that. By 1974, retail workers' weekly take-home pay had slipped to 43 percent. Last year, it stood at a third of autoworkers' weekly pay, according to preliminary estimates by the Bureau of Labor Statistics.

Such data alarms some economists.

"We're losing something in the process," says Willard Radell Jr., an economics professor at Indiana University of Pennsylvania in Indiana, Pa. "I worry that we're developing a caste system in America."

But other economists point out that the service sector includes many highly paid positions as well. "I would say that the core of what we would try to call the working class, what is now the middle class, are not the [workers at] Wal-Marts," says Ben Fischer, professor of labor studies and public policy at Carnegie Mellon University in Pittsburgh. Those who do work there either "have other income or they're very young or they're very old."

So far, Wal-Mart has managed to keep these workers satisfied. After years of trying, the United Food and Commercial Workers has only managed to organize one department in one Wal-Mart in Jacksonville, Texas. With the company's stock splitting 11 times since Wal-Mart went public in 1970, its profit-sharing plan has made many longtime employees quite comfortable financially.

"I could retire right now and I would never have to worry," says Mrs. Hartgrave, who started with the company in 1976.

But questions loom about the future. It seems unlikely such a huge corporation can keep up its breakneck growth. And as the empire becomes more far-flung, it may encounter difficulties instilling its corporate values in its new workers.

SUCH worries may explain why the company has adopted such an aggressive, anti-union stance in recent years. Last fall, the National Labor Relations Board charged the company with threatening employees, questioning them about union sympathies, and firing pro-union workers at the Jacksonville location. According to some estimates, Wal-Mart has the dubious distinction of being the most sued private entity, second only to the US government itself.

On the other hand, Wal-Mart repeatedly has defied conventional wisdom since its founding 40 years ago. And size, if anything, has enhanced the corporation's bargaining power.

"It's more likely that they would stumble because of complexity," not size, says Mr. Schulsinger of Management Ventures. But "I wouldn't bet against them.... They're successfully running the largest commercial organization in the world."